Self-funded health plans have enjoyed steady growth since the turn of the 21st century. In 1999, 44% of U.S. employees were covered by a self-funded plan. By 2020, that number had grown to 67%. It is clear that employers are increasingly finding self-funded plans more attractive than traditional health coverage.
The data shows a slight decrease from 67% in 2020 to 65% in 2022. Does that mean that self-funded plans are in danger of imminent decline? Not at all. After accounting for the effects of the COVID pandemic on healthcare delivery and payment systems, the future still looks bright for the self-funded model.
StarMed Benefits, a company that specializes in providing healthcare insurance alternatives, says 2023 could be a particularly good year for self-funded plans. They say there are three big things that could have an enormous impact over the next 12 months:
1. Inflation and Recession
There is no arguing that inflation has been a problem for the last two years. Prices for just about everything have gone up. The one thing that hasn’t kept pace is worker take-home pay. Wages have not grown as fast as consumer prices. We all know what that means.
When people cannot afford to maintain their current budgets, they start cutting costs. In some cases, this could mean refusing health care coverage. Also remember that what applies to individual employees also applies to their employers.
Healthcare costs are decimating employer budgets, especially among smaller companies with fewer than 50 employees. Being unable to keep up with rising premiums leaves smaller companies with two choices: abandoning their health plans and paying the federal fine or switching to a low-cost self-funded plan. Expect more to go with the self-funded option in 2023 if inflation persists.
2. Fallout from the COVID Pandemic
2023 could be the year we see a significant fallout from the COVID pandemic, at least where higher healthcare costs are concerned. That is the theory posited by Forbes Councils Member and contributor Mehb Khoja in a recent post.
According to Khoja, pandemic shutdowns prevented patients from seeing their doctors. He suspects that missed screenings over the past two years could lead to higher medical costs as a result of having to treat conditions that have worsened. He also suggests that increased stress and anxiety resulting from the pandemic will mean higher mental health costs in the coming year.
Both scenarios could drive more employers to self-funded plans simply out of financial necessity. If current plan premiums climb out of reach, going the self-funded route may be the only option.
3. Changing Employee Demographics
Finally, self-funded health plans are likely to be impacted by changing employee demographics. Both StarMed and Khoja agree that healthcare costs are influenced by supply and demand. By default, this means insurance premiums are also subject to the same influences.
Employee migration from northern states with higher costs of living to less expensive Sunbelt states is changing the larger employee demographic picture. As more people move to the Sunbelt, demand for healthcare services will increase. Furthermore, employers will struggle to adapt their healthcare plans in response to the Great Resignation. Both scenarios could ultimately drive more employers to offer self-funded plans.
At the end of the day, self-funded plans can save employers by giving them more control over their healthcare costs. But as StarMed points out, the real challenge for employers is finding the self-funded option most suited to their increasingly diverse workforces. Plans are out there. Employers just need to search for them.
